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Unformatted text preview: CHAPTER 18 DISCUSSION QUESTIONS 18-1 Q18-1. Standard costs are the predetermined costs of manufacturing products during a specific period under current or anticipated operating conditions. Standards aid in planning and controlling operations. Q18-2. A few uses of standard costs are: (a) establishing budgets (b) controlling costs by motivating employees and measuring efficiencies (c) simplifying costing procedures and expe-diting cost reports (d) assigning costs to materials, work in process, and finished goods inventories (e) forming the basis for establishing contract bids and for setting sales prices Q18-3. To set sales prices, executives need cost information furnished by the accounting department. Since standard costs represent the cost that should be attained in a well-managed plant operated at normal capacity, they are ideally suited for furnishing informa-tion that will enable the sales department to price products. Budgets are used for planning and coordi-nating future activities and for controlling cur-rent activities. When budget figures are based on standard costs, the accuracy of the result-ing budget is strongly influenced by the relia-bility of the standard costs. With standards available, production figures can be translated into the manufacturing costs. Q18-4. Standards are an integral part of job order and process cost accumulation, but do not comprise a system that could be utilized in lieu of one of the accumulation methods. Costs may be accumulated with or without the use of standards. Q18-5. Criteria to be used when selecting the opera-tional activities for which standards are to be set include the following: (a) The activity should be repetitive in nature, with the repetition occurring in relatively short cycles. (b) The input and output (product or service) of the activity should be measurable and uniform. (c) The elements of cost, such as direct materials, direct labor, and factory over-head, must be defined clearly at the unit level of activity. Q18-6. Normal or currently attainable standards are preferable to theoretical or ideal standards for (a) performance evaluation and/or employee motivation, and (b) budgeting and planning. Theoretical or ideal standards are not realistically attainable. As a conse-quence of using such standards, employees may become discouraged rather than moti-vated, and budgets or plans are likely to be distorted and unreliable. Q18-7. Behavioral issues that need to be considered when selecting the level of performance to be incorporated into standards include the fol-lowing: (a) The standards must be legitimate. The standards need not reflect the actual cost of a single item or cycle. However, they ideally will represent the cost that should be incurred in the production of a given product or the performance of a given operation....
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This note was uploaded on 03/15/2012 for the course ACCOUNTING 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.
- Spring '11